When Not Everyone Wins

Not everyone will lose from climate change, or to put it another way, not everyone would gain from climate change mitigation policies. But a smart mitigation policy, like a carbon tax, creates more benefits overall than costs. Some people will see the benefits over gains as sufficient justification for mitigation policy, but others oppose such policies unless the redistributive effects of the policies are compensated for so that the change is a pareto improvement. With climate change this would be, for example, areas of the country where cheap gas prices or carbon based energy production are disproportionately important.

Not everyone will lose from protectionism, or to put it another way, not everyone would gain from free trade. But free trade creates more benefits overall than costs. Some people will see the benefits over gains as sufficient justification for free trade, but others oppose such policies unless the redistributive effects of the policies are compensated for so that the change is a pareto improvement. With free trade this would be, for example, areas of the country where manufacturing jobs that would be displaced by trade competition is disproportionately important.

I don’t think there will be much of a correlation between these positions, yet they use similar logic. How do people decide when redistribution effects of a policy change are sufficient to overcome the desirability of benefits exceeding costs? Is there something more than political allegiance going on here?

7 comments

Carbon taxes are as invasive as the income tax. We fear those carbon taxes will become yet another tool of redistribution. And until there is more consensus on AGW, and the skeptics are quelled, there is no way to pass it. The time has passed. The movement is waning.

Your broader question is correct however. It is almost impossible to measure problems of this complexity. Which is why the conservatives prefer to work with evidence rather than hypothesis.

sounds ridiculous. our country and economy are very dynamic, when measured over the period of generations. At what point in our history, would you lock in carbon tax effects?

Also, I disagree with the premise that at carbon tax is a smart mitigation strategy. I define “smart” as a strategy that is better than doing nothing. Currently, doing nothing is the smartest thing to do.

Even if a carbon tax “worked” (in the sense that it reduced carbon consumption), it would only reduce emissions enough to postpone the tipping point by an almost negligible amount of time, not prevent climate change.* When looked at the drag on economic development from the tax, and the waste of the money taxed (unless the gov’t is going to spend the money by relocating populations from coastal areas), the whole thing will probably be a net loss.

*According to the science I’ve read –at least the most alarmist and currently most orthodox version) there is no “mitigation”, only hitting the tipping point or not hitting it.

As you can see above, it is all politics. They talk as if uncertainty and unknowns weigh in their favor rather than against them. They talk as if the costs of the tax exceed any costs of remediation after the fact. They talk as if money has no time value. More pertinently, they recognize by not acting the benefits fall to them while the costs fall on others and that sharing a burden is never as attractive as enjoying a benefit.

this certainly isn’t the reason there is a lack of correlation in the positions in the population at large, but to point out one big difference in the situations…

Many people believe that freedom is the default neutral outcome (and you can justify this belief in various way, utilitarian or moral) and the burden of proof falls on those who wish to restrict freedom. Therefore, someone who wishes to restrict free trade may wish to try to meet that burden by compensating for the distributional impacts, but it’s less likely that compensation is needed when returning to the default free state.

On the other hand, the world climate is a public good owned by no one and necessarily maintained by collective agreement, so the above logic doesn’t apply.

I think it is very far from clear that a carbon tax would be a net economic positive for the US. I’ve argued at length that the EV is almost certainly negative.

Here are two old posts from 2007 that make the argument. I think their predictions of the real (ie, “non-blackboard” in Coase’s terms) effects have been amply realized in all of the real world legislation, Waxman-Markey, etc. that has followed over the past 5 years.